Seller Concessions

Seller concessions can be used as a negotiating tool for both buyers and sellers.  The main use for them is to allow a buyer to roll their closing costs into their mortgage.  This decreases the amount of cash a buyer needs at closing.

For Example:  A home is listed at $250,000.  The sellers have a target price of $245,000.  The buyers are approved for up to $255,000 but do not have the cash to put down 3.5% plus closing costs on a property of that amount.

The buyers can offer the sellers a purchase price fo $255,000 with $10,000 in seller concessions. This still gets the sellers their target price of $245,000 and the additional $10,000 will go as cash from the seller, directly to the closing costs of the buyer, drastically reducing the amount of money needed at closing by the buyer.

Closing costs even on a 0% down VA loan can cost up to $13,000.

For a list of estimated closing costs, click HERE.

Wheres the catch?  Good question.  

There are limits on the amount of concessions are allowed depending on the structure of your loan.

• Va Loan	4%
  FHA Loan	6% of the sales price
  Conventional	3% if down payment is less than 10%
  	6% is down payment is 10%
  	9% if down payment is 25% or more

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• The property needs to appraise for the requested purchase price amount. The bank will not lend more money than the property is worth. You can only receive the concessions as long as the appraised value supports it.
• This increases the risk of your offer to a seller.  Some sellers can't wrap their heads around paying for someone elses closing costs, even if it doesn't effect their bottom line.  It also makes the risk of have an appraisal problem that much higher.  Many sellers don't want to risk having a problem that far down the line.

If you are going to make an offer and ask for seller concessions, make sure that the purchase price has a good chance being supported by the appraisal and be prepared to make a strong offer.  With the additional risk to the seller, there will need to be a reward for them. Don't get greedy, it's not everyday when you can have other people pay for your closing costs.